Always be wary of the name given to a piece of legislation. It rarely accurately describes the likely impact of passing a bill. In fact, laws often do the opposite of what their name suggests. Take Sen. Amy Klobuchar, D-Minn.’s bill titled the American Innovation and Choice Online Act. While everyone loves more choice and innovation, this bill would hamper both because it imposes high costs on consumers. In fact, a more appropriate name for Klobuchar’s bill would be the Anti-Consumer and Stagnation Act of 2022.
Born out of the recent rush to expand antitrust regulation, the bill would give government bureaucrats at the Federal Trade Commission (FTC) and Department of Justice (DOJ) the power to rein in the booming tech sector of the economy. with regulations and mandates aimed at making “big” businesses smaller, regardless of how well a “big” business serves consumers. The economy of this idea is false.
The targets of these legislative efforts are some of the most successful companies in our country’s history, including Apple, Google, Facebook, Amazon and Microsoft. Klobuchar and his company want to divide these entrepreneurial successes into smaller companies, all without considering the benefits consumers derive from vertical integration. Vertical integration occurs when a company has multiple stages of production. Competing for customers, companies buy – or sell – different stages to achieve the maximum efficiency possible. To put this reality into perspective, popular services such as Amazon Prime and Google Maps are vertical integration products and would be banned under the new legislation.
Let’s look at some fundamentals. Nobel Prize-winning economist FA Hayek has insightfully observed that “economic planning, regulation and intervention pave the way for totalitarianism by building a structure of power that will inevitably be seized by the most power-hungry and unscrupulous.” . Granting unelected bureaucrats sweeping powers over businesses that drive economic growth is economically and politically dangerous. The risk is simply too great that the government will abuse this power by forcing corporations to pander to the whims of organized interest groups, including the administrative state itself. The subsequent removal of decision-making based on profit and loss will result in inefficiency and stagnation.
You don’t have to believe that the market produces perfect results to realize that government can rarely outperform private enterprise. Policy decisions are not driven by market signals, profit motives or consumer preferences. These decisions are inherently political, suffer from a serious knowledge problem and are mostly independent of any liability regime when they fail. The government often turns out to be biased against big, successful companies that provide new technologies that legislators often don’t fully understand but consumers love. This is why government so often fails, and this policy is no exception.
Active antitrust intervention has support from elements of both sides, but for all the wrong reasons. Progressives push for intervention out of sheer distaste for free markets, generating an instinctive itch to subject corporations to government power rather than consumer preferences. Some nationalist conservatives, on the other hand, are angry about perceived discrimination by “Big Tech” against conservatives. These conservatives are misinterpreting their anger as reason enough to go after successful tech companies. Any elected official who favors small government and respects free markets should firmly resist these ideas.
The cost to consumers of this bill would be devastating. An October 2021 study by NERA Economic Consulting estimates that such a proposal will cost consumers $300 billion, as it subjects “platforms and online marketplaces to common carriers, structural separation and restrictions by sector of activity”.
It is bad economic policy to give federal bureaucrats the power to question the market-tested decision-making processes of some of the most successful companies in history. Some members of Congress are standing up to both parties by resisting the temptation of their colleagues to second-guess private-sector contractors. Sen. Rand Paul, R-Ky., wrote to Fox News that “these proposals to ostensibly shrink tech giants would rather perpetuate the dominance of these companies and deprive consumers of the technological innovation that only the free market would competition can bring.” Paul explained how the benefits of vertical integration and “win-win” competition allow companies to grow if – and only if – a company “continually rewards its consumers with superior products and innovations”.
In fact, it’s the lack of strong regulation in America’s tech sector that has led to unprecedented economic growth and higher living standards for nearly all of us. We should be wary of those in Congress who claim they can do better by destroying what works well.
— Véronique de Rugy is the George Gibbs Chair in Political Economy and Senior Fellow at the Mercatus Center at George Mason University. To learn more about Véronique de Rugy and to read articles by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate webpage at www.creators.com.